Cryptocurrency is digital money that doesn’t rely on a bank or financial institution to verify transactions and can be used for purchases or as an investment. It uses a technology called blockchain, an unchangeable ledger that tracks and records assets and trades.
Cryptos can be stored in digital wallets, which are secure containers for your coins. Transactions are recorded on the blockchain and are verified by a network of computers, or nodes. Each node has a copy of the blockchain that it updates in real time. Ownership of a cryptocurrency is confirmed through encryption, meaning only those who have the private key can decrypt and access funds in a wallet.
The value of a crypto is determined by how many people want to own it, how useful they think it will be in the future, and news about companies using it or how regulators are addressing legal questions. Prices may also be influenced by speculation about how the currency will perform and whether it is a good investment. Stablecoins, for example, seek to tether their value to an asset, like gold or the dollar, in an attempt to stabilize their price.
While there are a wide variety of ways to invest in and spend crypto, scams targeting investors are widespread. Be wary of any cryptocurrency that claims to offer guaranteed returns or a quick path to riches.
Some cryptocurrencies have become popular tools for criminals, who use them to make illicit purchases or launder money. The case of the “Dread Pirate Roberts,” who ran a marketplace to sell drugs on the dark web, is well known. Hackers also use cryptocurrencies to commit cybercrimes, such as stealing personal information or running a “ransomware” scheme to hold victims’ data hostage until they pay a fee.
Other cryptocurrencies are being explored as a new payment system, without the need for trusted intermediaries such as banks and monetary institutions. This has the potential to reduce costs for businesses by eliminating or reducing fees associated with international payments and transfers. It also could allow consumers to transfer money quickly and easily between countries, with less friction than traditional banking systems.
While there are a number of benefits to crypto, it is important to remember that it is not insured, like money in a bank account, and can be lost. Platforms that buy and sell crypto can be hacked, are often unregulated, and some have failed. Unlike credit cards, bitcoin payments are typically not reversible, and the wallets that hold crypto can be wiped out by software malfunction or malware. So, only purchase and invest in crypto with an amount you are willing to lose. Also, if you plan to store your cryptocurrency in a digital wallet, be sure it is encrypted and use strong passwords to protect it. Finally, consider using a wallet that supports multiple different platforms, so you can move your coins between them as needed.